Throwing caution to the wind, as the realisation sets in that memory IC’s will be in short supply throughout 2010 and beyond, Samsung Electronics is planning to significantly increase its capital spending to boost both DRAM and NAND Flash memory production. In a conference call to discuss fourth quarter financial results, Samsungs IR representative noted that the company was “seriously reviewing CapEx for memory.” The leading memory manufacturer had already announced plans to boost production, primarily with advanced node migrations worth US$6 billion for 2010. “Overall CapEx may increase significantly,” the IR representative said in the call.

The spokesperson also noted that further spending was being considered for the migration to 3Xnm technology to boost bit growth of NAND flash memory. Samsung said that it expects to boost NAND bit growth by 80% by the end of 2010.

Samsung boosted DRAM bit growth via die shrinks by only 10% in 4Q09 and expects a further bit growth of 10% in 1Q10. Total bit growth for DRAM is expected to be in the region of 60% for 2010.

Rising ASPs seen in the second half of 2009, which occurred on the back of increasing demand but tight supply of memory products due to several consecutive years of underinvestment in new capacity by memory manufacturers led to significant revenue generation and a return to profitability.

However, the underinvestment has meant little or no new 300mm fab capacity is available to come on stream as new fab construction was ruled-out since 2008, due to overcapacity and massive losses by the most memory manufacturers.

According to market research firm IC Insights, overall DRAM CapEx fell to US$3.2 billion in 2009, down from US$9.7 billion in 2008. However, CapEx in 2007, stood at a combined total of US$18.7 billion.

In the period 2004 to 2008, DRAM CapEx amounted to over US$63 billion. With fab utilization rates above 90% in 4Q09, even modest demand growth could cause continued shortages.

The overcapacity situation and financial losses so severe, led DRAM producer, Qimonda to fold and its assets sold off. Efforts were also made and failed by the Taiwan government in an attempt to consolidate DRAM producers in a bid to save the industry.

None of the Taiwan DRAM manufacturers have the capital or access to the funds required to rapidly migrate to smaller nodes to boost bit growth or build new facilities to significantly boost capacity.

Number 2 memory producer, Hynix has been unable to find new investors and capital via that channel and is restricted to bit growth via node migrations only when generated by cash-flow from recovering sales and a return to profits.

Steve Newberry, President and Chief Executive Officer of Lam Research, noted in a conference call with analysts, earlier in the week that Samsung was adding new lines as part of the announced CapEx plans for 2010, however he said in the call, “When a customer has to buy 10,000 wafer starts per month of all new equipment, in DRAM that will cost them typically about US$275 million for those 10,000 wafer starts per month.

Right now, when we look at what they spent in 2009 and what it looks like they're going to spend in 2010, they're only going to have to spend about $130 million or US$135 million for every 10,000 wafer starts. And so that means that about two-thirds of the spending is probably going to conversions and a third's going into new and that's probably true for both DRAM and NAND.”

The recovery in demand for memory products and the lack of new capacity is expected to see those with access to capital to raise spending plans further in 2010 and eventually lead to a string of new fab build announcements.